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New Managers December 2018

MARKETING CHALLENG: Diane Harrison: Hedge habits to leave behind In 2018

 

Before setting resolutions for 2019, December provides managers and investors with a good time to break bad habits endemic to the hedge fund community. There's no shortage of subjects where these practices lurk, but here are five suggestions on habits to leave behind in 2018.

ONE: DON'T BURY THE LEAD OF THE ALTERNATIVES STORY: THAT AT ITS ESSENCE IT'S NONTRADITIONAL

I have heard numerous times from alternative managers and their sales support that one of the challenges hardest to overcome in reaching out to prospects is communicating the role of alternatives

within a portfolio plan. Because investors typically find the instruments used in many alternative strategies, namely debt and equity components, more familiar to them, the conversation turns to discussing particular segments of the debt or equity markets used by the alternative strategy rather than how the strategy performs itself.

The CFA Institute Research Foundation summarized this issue in their 2018 paper, Alternative Investments: A Primer For Investment Professionals (Donald R. Chambers, CAIA, Keith H. Black, CFA, CAIA and Nelson J. Lacey, CFA}: Alternative investments include strategies that offer unusual risk and return characteristics even when the securities underlying the strategy are traditional stocks and bonds. The returns of alternative investments do not mimic the returns of traditional asset classes (stocks and bonds), and therefore, they require specialized methods of analysis. The challenge for an asset allocator is to decide, as skillfully as possible, which new types of assets to include in a portfolio and which to exclude.

Due in part to this, a challenge for providers of alternative strategies is to assist investors in a better understanding of how a nontraditional alternative strategy works, how that impacts the traditional components of a portfolio, and how best to integrate the two asset classes.

TWO: DON'T S......................

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This article was published in Opalesque's New Managers a top-down monthly analysis, news and research publication on the global emerging manager space.
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